California (and the rest of the U.S.) seems to have a prevailing reticence to allow anybody to turn an honest profit out of medical marijuana. You can grow your herb and share it with your friends in one or other non-profit arrangement if agreed to by your state. Under the not-for profit model “profits” are not allowed. With new legislation in play, traditional for-profit entities will be allowed to operate MMJ businesses. So what about existing not-for-profits (mutual benefit corporation) that want to transition to a for profit business? Hilary Bricken wrote an explanation for Above the Law concerning how we got into this mess. This set us to thinking about where to go from here.
As states like California realize that by collecting sales tax on MMJ they are de facto recognizing it as a business, the question arises how to migrate a not-for-profit interest to a full-blown company that will sell for a good return once the floodgates open, and the anti-medical marijuana brigade shuts up shop. The problem is you cannot sell something unless you own it.
MMJ non-profits typically do not have owners, although they do have officers and directors who often may not receive any stipend outside reimbursement for expenses. If an organization folds by going into liquidation or voluntary dissolution, these officials often have no right to a share in the asset distribution. California is non-typical in that it allows members, officers and directors to draw salaries and share in the distribution of assets on closure.
California’s Medical Marijuana Regulation and Safety Act MMRSA introduces a new regime whereby collectives “may operate for profit, not for profit, or any combination thereof”. Many forward-thinking individuals want to move away from operating in stealth mode in a collective, by establishing and licensing a regular business.
They face two problems in attempting to do so successfully. They are (a) in the back of the queue when it comes to applying for a license when the process starts, and (b) their new organization has no trading record. If you are in this position and want to retain the benefits of the old order, here are some possibilities to consider in an uncertain regulatory environment, with specific reference to California.
Since California permits non-profits to merge with for-profit companies, it’s theoretically possible to go down that route, transfer the value in the non-profit to the larger entity, and then allow the former to die after completing the MMRSA license application process, when that clicks into place.
Alternatively, Californian law allows a non-profit mutual benefit to convert to a for-profit one. Until we have full details of the regulations behind California’s Medical Marijuana Regulation and Safety Act, it’s perhaps safer to continue in stealth mode for a while longer, while putting plans in place to move quickly when the muddy waters clear.